Longtime Houston attorney Tom Kirkendall's observations on developments in law, business, medicine, culture, sports, and other matters of general interest to the Houston business, professional, and academic communities.

Post navigation

Sheila Kahanek tells her story, but William Fuhs remains in prison

During its four year existence, the Enron Task Force has always been better at bludgeoning plea bargains and villifying former executives in the media than actually obtaining convictions in court.

One of the former Enron executives who stood up to the Task Force is Sheila Kahanek, the former mid-level Enron accountant who was acquitted of fraud and conspiracy charges in the Task Force’s controversial Nigerian Barge prosecution. That case resulted in the questionable convictions of four former Merrill Lynch executives on charges that they assisted Enron in manipulating its finances in connection with a sale of an interest in some power-producing barges off the Nigerian coast.

In this important U.S. News interview, Kahanek tells her compelling story about being falsely accused of a crime and the ordeal involved in defending herself with limited resources against a prosecution team that has no such limitations. The entire interview is a must-read, but Kahanek’s answers to the following questions about the government tactic of preventing exculpatory testimony from coming to light and the high price of asserting innocence are particularly interesting:

The defense attorneys for Lay and Skilling have complained that the prosecution is scaring witnesses away from testifying for their clients. Did this happen to you?

It was extremely rare if you could get someone to return a call, much less answer your questions. Prosecutors have absolute power in deciding whom to indict, regardless of what the law says concerning the not-so-grand jury. It is an unfortunate reality that most people will not risk their freedom for that of another, particularly if they have a spouse or children.

So weren’t you tempted to plead guilty and limit your losses?

Absolutely not. Dan [her defense attorney, Dan Cogdell] and I got that clear from the start. A plea deal was not an option. It wasn’t an option. I had to know I fought for what was right. I had to be able to look myself in the mirror and know that I never compromised myself or the truth. Every day I had to dig into myself and find the strength to fight another day. I have asked a number of people with children: Would you stand up and fight if it meant you might not see your kids for 24 years, when you can take a deal for five years? No one has said absolutely that they would fight it. Someone told me: “When you have children it is not about you anymore.”

Read the entire interview, and then give some thought to the plight of William Fuhs, the former mid-level Merrill Lynch executive who was convicted in the same trial in which Kahanek was acquitted and who had virtually the same level of involvement in the transaction that formed the basis of the prosecution as Kahanek (Fuhs was the ministerial scrivener of the transaction and had no involvement in either the structuring or the negotiation of the deal).

Fuhs — who is in his early 30’s with a wife and two young children — now sits in federal prison awaiting disposition of his appeal for merely having documented a legitimate transaction that the government criminalized because of matters in which Fuhs was not involved.

What our Justice Department has done to Kahanek, Fuhs and the other Merrill Lynch executives involved in the Nigerian Barge case — and how the government is handling the Lay-Skilling prosecution — is a radical abuse of our criminal justice system, and the extraordinary damage to the individuals and families involved cannot be responsibly dismissed as a trade-off of an imperfect system.

As we watch principles of justice and the rule of law trampled upon in such cases, contemplate whether — as Sir Thomas More asked Will Roper in A Man for All Seasons — “Do you really think you could stand upright in the winds [of abusive state power] that would blow” if the government were to set its sights on you?

13 thoughts on “Sheila Kahanek tells her story, but William Fuhs remains in prison”

Either you are showing manufactured outrage at how prosecutors use discretion or you are an attorney who is woefully out of touch with the reality of our civil and criminal courts. Offering federal jurists lifetime tenure based on political patronage removes them from any semblance of accountability and renders all too many callous as to the ideals of fair and impartial justice. They rule as self important demi-gods accountable to no one and as such earn little respect from the people, whose interests they swore to serve. Offering prosecutors advancement based on their “kill ratio” encourages them not to serve the interests of the people, but rather to prosecute the weak and plea bargain with the mighty in the interests of a higher conviation ratio and personal career advancement. Civil courts are such a crap shoot that they scare the hell out of all involved (as you are a practicing attorney, you are obligated to blame this on juries and not jurists or officers of the court). Face it, the system is broken. Few people today have any respect for judges at any level, even fewer have any respect for attorneys and no one has respect for the system itself.

Tom,
I read your blog for one reason and one reason only. You are the only place that has kept the fire burning regarding those who have been unfairly prosecuted by the enron task force and its over reaching power to block exculpatory testimony by the use of being listed as an ‘unindicted co-conspirator’. Even typing the phrase I sense our government is breaking it’s own laws by preventing justice to prevail and making sure innocent people don’t go to jail.
Admittedly, I am a friend and relative through marriage of Dan Bayly and like Sheila Kahanek, I had a naive perception of our Justice system and felt they were there to ENSURE innocent people need only tell the truth and the truth would prevail. That perception is shattered now and as Mr. Bayly sits in prison awaiting his appeal, time goes by. His one and only daughter has had a child. He missed her birth, saw her at federal prison and suffers alone the pain of not being there with his family.
I still am stunned at the speed in which an injustice can occur and the slowness in which it is corrected. Perhaps I have a bias due to my family’s relationship to the Bayly’s and I apologize in advance. But I have read here time and time again how the ETF has used their tactics with far too heavy a hand and a travesty is occurring if we fail to correct it.

Tom,
Please remind Edward that Dan Bayly is not an innocent persoon who “need only tell the truth and the truth would prevail.”
Mr. Blayly “forgot” to tesitfy at trial, so he is not an innocent person who told the truth. He is a person who when given the opporunity to tell the truth decided not to say anything.
Ms. Kahanek did testify and was acquitted, as I recall.
Fuhs actually testified but was tripped up by the facts, according to the Houston papers of the time
“Another document used to get final approval of funds for the project shortly after Christmas ó which Fuhs said he did not work on ó had key language differences. Instead of vague assurances of the first document, the second said, “They have assured us that we will be taken out of our investment within six months,” and that Bayly would talk to Enron management “to guaranty the ML takeout within six months.”
“A copy of the document was found on a computer directory Fuhs used, but he said it was saved there accidentally because it had the same name as another document.”
That’s one hell of a memory–recalling saving one document as a differnt one.

There is only problem with your theory, Moe. There was nothing wrong — much less criminal — with Enron agreeing to take ML out in six months. Arguably, that promise undermined Enron’s own accounting of the transaction, but there was no evidence introduced during the trial that Fuhs ever communicated with anyone at Enron regarding accounting or had the slightest thing to do with how Enron accounted for the transaction.

Unindicted co-conspirator…think about that label for a second. Would you like to be considered one? Oh, by the way sir, if you decide to testify for the defense, we can’t guarantee that you won’t be added to the indictment. Please read Ms. Kahanek’s words in the above story. Many people who could have testified in her defense chose to protect themselves and let her go it alone.
Moe, it is a very, very powerful tool to use this veiled threat and how it can suppress evidence. Consider if you were on trial and were innocent of wrong doing, you knew it and people you worked with knew it. But the prosecution only wanted you, the same tool was applied to your coworkers and they chose not to testify. And their was nothing you could do. The jury won’t get the whole story ….just like the Dan Bayly. The whole story was suppressed and people went to jail.
As far as Mr. Bayly testifying, he trusted his lawyers, whether that was good or bad judgement is irrellevant, but it happens all the time in court and should not be a presumption of guilt as you are inferring in your post.

Mentioning unindicted co-conspirators; At the lower level, middle level and higher level at Dynegy in Jamie Olis trial, I did not see them jump over the court room swinging doors to come to the aid in Olis’s defense. All these level unindicted co-conspirators at Dynegy lived happily ever after. Why would you expect any of the three levels UNINDICTED personnel to come to the aid to any corporation defendant(such as Mr Bayly or Mr Fuhs) or any other defendant in ENRON trials. Would you, a lawyer or anyone tell a friend to get involved. I don’t think so. Reality! Reality! Reality!

TK writes,
“There was nothing wrong — much less criminal — with Enron agreeing to take ML out in six months”
If there was such a promise, then there was no economic reality to the transaction; it was just a straight manipulation of income done to meet the street’s earnings estimate and was a crime.
Oddly, the accountant who was acquitted documented no less than 20 times when she told people you cannot do what TK says one can do (and no one told her she was wrong), they just hid the final transaction from her.
As for Bayly blaming his lawyers, when is this guy ever going to take responsibility? He was present when his co-defendants testified and had the opporutnity to judge whether he could testify honestly and avoid conviction or whether cross examination would expose him as being untruthful. He actions in not testifying are pretty conclusive to me.
As for the threat of being charged, this happens every day to thousands of people who have the misfortune to be poor or middle class and related to somone charged with being a drug dealer. Bayly was treated no differently than any other defendant facing any other crime in the federal system.

Moe, even if one assumes that an Enron promise to take Merrill out in six months eviscerated Enron’s accounting of the transaction, that does not make the transaction itself illegal in any respect. It only makes Enron’s accounting treatment of the transaction illegal.
The point is that there was no evidence at trial that Fuhs had any involvement or knowledge whatsoever of how Enron was going to account for the transaction and, thus, there was no basis for criminalizing his conduct in papering a legitimate deal. In point of fact, there was a paucity of evidence that even the Merrill execs who were involved in structuring the deal — Furst, Bayly, and Brown — even understood what Enron was doing.
That these men were convicted of crimes for engaging in a legitimate transaction that Enron may have accounted for improperly (that hasn’t even been proven) is an abomination of justice.

TK
believes, “that does not make the transaction itself illegal in any respect. It only makes Enron’s accounting treatment of the transaction illegal”
Tom,
all of what you say would be true, if we didn’t have concepts like aiding and abetting and conspiracy.
18 USC 2 makes one a criminal when one “aids, abets” a crime. It is not a crime to hand someone a knife, unless you know that person is going to use the knife to commit a murder, in which case it is aiding and abetting.
Because of the doctrine of wilful blindness, one doesn’t even have to have actual knowledge.
The two cases I like on wilful blindness are, first, Her Majesty the Queen against Dijoin Laroque (file # 327053798) in which the defendant was accused of drug trafficking for his failure to act on his suspicions that a customer was using his sports bar to traffick drugs.
The second case is UNITED STATES WYNN, DC Cir 1995, in which the defendant was convicted for operating an honest business. His troubles stemmed from his operation and co-ownership of Linea Pitti, an exclusive Washington, D.C., retail store specializing in expensive Italian men’s clothing. Linea Pitti’s two best customers were Rayful Edmond III and Tony Lewis. The two made cash purchases totaling more than $457,000 from the store in 1987 and 1988, accounting for more than 25 percent of Linea Pitti’s gross sales in fiscal year 1988. Wynn served as their primary salesman. Edmond and Lewis commonly purchased large quantities of merchandise at one time and later paid for those purchases in relatively small installments.
Now, the government has been using these criminal theories for years in drug cases and other cases against low and middle income people, without any complaint from you of Mr. Bayly. Why should the law be different for him.
If you are so concerned about business Mr Wynn surely had a harder business life than Mr. Bayly.

Moe, the Wynn decision actually supports the position of Fuhs and the other Merrill Lynch defendants in the Nigerian Barge case.
In Wynn, the Court found that the government had proven that Wynn knew that the drug dealers were engaged in unlawful activity and, thus, Wynn knew that the proceeds he was handling for them were the fruit of unlawful activity. Moreover, the government also proved that Wynn engaged in transactions with the drug dealers that Wynn knew were illegal (putting one dealer on the payroll fraudulently; not recording sales receipts, etc).
On the other hand, the government in the Nigerian Barge case propounded no evidence to show that Fuhs had any knowledge of how Enron was accounting for the transaction or even that he would have had any reason to know how Enron was accounting for it.
You’re stretching.

no evidence to show that Fuhs had any knowledge of how Enron was accounting for the transaction
the required knowledge is inferred from his participation in a transaction that lacked economic substance–the transaction was no different than putting someone on the payroll, fraudulently
both are “phony” transactions and are enough to show a criminal state of mind, if that is what the jury chooses to believe

Moe, no one — even the Enron Task Force — argued that the transaction lacked economic substance. Heck, both Merrill and Enron reaped substantial profit from the transaction.
If Wynn had simply sold the drug dealers clothes and not participated in money laundering, then do you really think that he would have been prosecuted?